Rupee to rise to Rs 45-46 per dollar by March 2012: Crisil

Rating agency Crisil on Monday saidit expects the rupee to strengthen to Rs 45-46 level against dollar in the nextfive months on the back of pick-up in FII inflows towards early 2012.

 

The rupee is expected to strengthen to Rs 45-46 per dollar by March 2012, from the current lows of around 50, Crisil said in a report.

The rupee in the past one month has dived from 45 level tonear 50 levels against the UScurrency on continued FII outflows and strong dollar overseas.

Rupee closed at 49.45/46 against dollar on Monday.

The key assumption behind the expected recovery of the rupeeis that developed economies will witness slowdown, but they will avoid anotherrecession. In our opinion, this will lead to a pickup in FII inflows towardsearly 2012 as the risk appetite for investment in emerging markets returns, itsaid.

However, in a worst-case scenario, it said, a potentialdouble dip in growth in advanced economies could have a sharper-than-expectedimpact on the Indian currency, causing it to slide further and prolonging itsrecovery.

The rupee fell to almost 50 against the dollar on September23 from 44.4 in July 2011. The fall is almost as steep as that during the peak of Lehman crisis in 2008, it said.

The rupee depreciation during the Lehman episode wascharacterised by a global recession and the consequent credit freeze. Thecurrent slide of the rupee is due to two factors - first, rising demand fordollars by Indian companies, in conjunction with reducing supply of dollars dueto weak FII inflows, it said.

Repayment pressures on corporate India, rather than capitaloutflows, seem responsible for the sharp weakening of the rupee, it said.

While rising risk aversion has led to portfolio outflowsfrom India in the past fewweeks, the quantum of outflows has not been too large, it said, adding, in fact,the withdrawal of portfolio investments from India during August-September 2011has been much lower as compared to October 2008 and January-March.